How Much to Set Aside for Taxes as a Freelancer

When you were employed, tax mostly happened before the money reached you. As a freelancer, the full payment lands in your account. It looks like yours. Part of it isn't.

The question every new freelancer asks is simple: how much should I put aside? The honest answer is that it depends on where you live, how much you earn and how your business is set up. Nobody can give you one percentage that fits everyone.

What you can do is build a clear, repeatable estimate and a habit around it. That's what this guide covers.

Not tax or legal advice. Everything below is an estimate and a plan. Check your own numbers with an accountant or your tax authority's guidance.

Why a tax reserve matters

Without a reserve, tax turns into a surprise. A big bill arrives months after the money was earned, and by then the money has gone to rent, software and groceries.

A reserve does three things:

• It separates "money I earned" from "money I can spend."
• It turns one large, stressful bill into many small, planned transfers.
• It makes your real income visible. If your rate only works before tax, you find out early.

Step 1: Find out which taxes apply to you

Freelancers often deal with more than one kind of tax or contribution. Depending on your country and setup, that can include:

• Income tax on your profit
• Social security, pension or health contributions for the self-employed
• Sales tax or VAT that you collect from clients and pass on

Start by listing which of these apply to you. Your tax authority's website for self-employed people is a good first stop. If anything is unclear, ask an accountant. One short meeting can save you a lot of guessing.

Note on sales tax or VAT: if you charge it, that money was never yours. Many freelancers keep it in a separate pot from their income tax reserve so it's easier to track.

Step 2: Work from profit, not revenue

In many systems, income tax is based on profit: what you earn minus allowable business costs. So the reserve should be based on profit too.

Estimated profit = income − business costs

If you don't track costs yet, start now. Even a simple list of software, equipment and fees makes your estimate more accurate.

Step 3: Pick an estimated reserve percentage

Now you need a percentage to set aside from each payment. Ways to get one:

• Look at last year's tax as a share of last year's profit, if you have it.
• Use your tax authority's published rates and any online estimator they provide.
• Ask an accountant for a rough planning figure.

If you're unsure, many people choose to round up. Setting aside a bit too much usually means a small surplus later. Setting aside too little means a gap you have to cover. That's a personal choice, not a rule.

Step 4: Set aside a share of every payment

Here's the habit that makes it work: every time a client pays, move your reserve percentage straight away. Before you spend anything.

Amount to set aside = payment × your estimated reserve percentage

A separate savings account just for tax helps. If the money isn't in your everyday account, it's harder to spend by accident.

Worked example (example numbers only)

These figures are made up to show the method. They are not typical or recommended rates. Use your own estimate.

If you also charge sales tax or VAT, that amount goes into its own pot on top of this.

A simpler version some freelancers use: apply the percentage to the whole payment. It's less precise but easier, and it tends to leave a little extra. Either works as long as you're consistent.

Step 5: Know your deadlines

A reserve only helps if the money is there on the day it's due. Write down:

• When your tax return is due
• Whether you have to make advance or quarterly payments
• When sales tax or VAT returns are due, if they apply

Put these in your calendar with a reminder a couple of weeks ahead.

Step 6: Review regularly

Your estimate will drift. Check it:

• Every quarter, against your actual income and costs
• When your income changes a lot, up or down
• When rules change in your country
• After you file, by comparing what you set aside with what you actually paid

If you over-saved, great. Decide on purpose what to do with the extra. If you under-saved, raise your percentage going forward.

Common mistakes to avoid

• Waiting until the end of the year. By then the money is usually spent.
• Mixing tax money with spending money. Keep it in a separate account.
• Forgetting contributions. Income tax isn't always the only thing owed.
• Guessing once and never checking. An estimate needs updating.
• Ignoring tax when setting your rate. If your rate doesn't cover tax, saving harder won't fix it. See how to find your minimum hourly rate.

Do it faster with a spreadsheet

You can do all of this with a calculator and a notebook. If you'd rather have it set up for you, here are two tools I built.

Start free: the Tax Reserve Calculator lets you enter your own estimated percentage and shows how much to set aside from each payment and what's left to use. Excel and Google Sheets.

Then, if you want more of your money admin in one place: the Freelance Starter Bundle – Finance Kit + Get Paid On Time Kit + Rate & Quote Calculator ($25) puts three spreadsheets (Excel / Google Sheets) together: the Finance Kit for income, expenses and your tax reserve, the Get Paid On Time Kit for tracking who still owes you, and the Rate & Quote Calculator for checking what you charge.

FAQ

Is there a standard percentage freelancers should save for tax?

No single number works everywhere. It depends on your country, income level, costs and business type. Use your own estimate from Step 3 and check it with an accountant or your tax authority.

Should I set aside tax from revenue or profit?

Income tax is often based on profit, so profit is usually more accurate. Setting aside from revenue is simpler and tends to leave a margin. Pick one and stay consistent.

What if I set aside too much?

Then you have a surplus after you pay. You can keep it as a buffer, move it to savings or lower your percentage next year.

Does the free calculator tell me what I'll owe?

No. It applies your own estimate to plan a reserve. For what you'll actually owe, check with an accountant or your tax authority. Not tax or legal advice.

Espen Vårum, Tallsmia

Not tax or legal advice. All figures in this article are examples to show the method.